Hyderabad Airport may seek hike in tariffs

MUMBAI: Hyderabad International Airport Ltd plans to seek an increase of more than 60% on user development fees levied on passengers flying out of the airport.

The joint venture company promoted by the GMR Group is likely to submit a proposal to this effect to the Airports Economic Regulatory Authority next week, a person familiar with the matter said.

Hyderabad airport already levies the highest user development fees or UDF in the country, at Rs 430 per domestic ticket and Rs 1,700 for international travel.

GMR Group holds 63% share in Hyderabad International Airport Ltd while Malaysia Airports Holdings Berhad holds 11%, and the Airports Authority of India and Telangana government hold 13% each.

UDF is levied by Indian airports to fill the gap between the investment made to develop the infrastructure and the revenue earned from the project. The levy is calculated on a “cost plus” basis. This means that the passenger has to compensate the airport operator for its operating costs, depreciation and taxes plus a reasonable profit margin that covers its cost of debt and equity. The charges are up for revision every five years, known as control period.

In the case of Hyderabad airport, the control period ends on March 31.

The joint venture company has spent Rs 2,478 crore, the initial estimated project cost, in building the greenfield airport. That is calculated as the existing asset base. Nearly 25% of the cost came as equity participation while the rest was loans, the person cited earlier said, requesting not to be named.

The person the airport operator has incurred expenditure of nearly Rs 1,000 crore on foreign exchange fluctuation and changes in cost of debt that have not been accounted for in the ongoing control period. Also, while the airport started operations on March 23, 2008, its control period started from April 1. 2011. So charges haven’t been calculated for these three years, he said.

The operator posted a net profit of Rs 51 crore in the October-December 2015 quarter, compared to a loss of Rs 261 crore a year earlier. According to a corporate presentation, UDF accounted for 26% of its total revenue.

High airport charges in India have been widely criticised, especially by the lobbying body International Air Travel Association, as being detrimental to air travel demand. Its director Tony Tyler has repeatedly said that the Airports Economic Regulatory Authority should determine airport charges.

The authority had in February 2014 abolished the levy of UDF at the Hyderabad airport, following which the operator had approached the Hyderabad High Court, which said the ministry should take a decision. In November 2015, the Directorate General of Civil Aviation put out a notice restoring the levy of UDF by the airport.

Industry experts said there is no certainty that the operator will agree to the operator’s proposal.

There is a very well-laid-out procedure for determining tariffs, said Amber Dubey, partner and India head of aerospace and defence at consultancy KPMG.

Dubey said the operator has to give a detailed account of its projected traffic, revenue, capex and operational expenditure, funding costs, etc. Past forex losses or interest costs will also be considered. The regulator will then fix the maximum cost to be levied per passenger. The airport will spread that over aero charges like landing and parking charges etc.

“If there is still a shortfall, the regulator may allow an equivalent increase in UDF. The Airports Economic Regulatory Authority will always endeavour to keep tariff shocks to the minimum,” Dubey said.

Delhi and Mumbai airports collected more than Rs 10,139 crore in user development and passenger fee till December 2015 since their privatisation in 2006-07, the minister of state for civil aviation Mahesh Sharma recently told Parliament.

A recent decision by the authority to slash Delhi airport’s tariffs 89% is pending because of ongoing court cases on earlier judgments. A proposal by Mumbai airport to hike charges is under the regulator’s consideration.